Stock Index Construction

Stock Index Construction

Intuition Publishing Pty Ltd
Updated Sep 25, 2020

A hypothetical portfolio containing all possible stocks would be too broad to measure, so stock indexes have been developed as proxies for overall market performance. Not all indexes are the same and knowing how each of them are constructed will give you an insight into the significance of their price movements. Here we investigate how some of the main indexes are constructed and the means by which the indexes are adjusted for events such as a change in their component stocks.